Victoria Ivashina

Victoria Ivashina is the Lovett-Learned Chaired Professor of Finance at Harvard Business School. Professor Ivashina is also the faculty chair of the Global Initiative for the Middle East and North Africa (MENA) region. She is a Research Associate at the National Bureau of Economic Research (NBER), a Research Fellow at the Center for Economic Policy Research (CEPR), and a Visiting Scholar at the Federal Reserve Bank of Boston and the European Central Bank. She co-heads the Harvard Business School’s Private Capital Initiative and Private Equity and Venture Capital (PEVC) executive education program. Professor Ivashina serves on the editorial boards of the Review of Corporate Finance Studies and the Journal of Financial Intermediation.

Professor Ivashina’s research spans multiple areas of financial intermediation including corporate credit markets, leveraged loan market, global banking operations, asset allocation by pension funds and insurance companies, and value creation by private equity. Her research has been published in the top journals in Finance and Economics and is regularly cited in media outlets including The Economist, The Financial Times, and The Wall Street Journal. Professor Ivashina is the author of Patient Capital: The Challenges and Promises of Long-Term Investing (Princeton University Press, 2019) and Private Equity: A Case Book(Anthem Press, 2019). Since 2010, she has been teaching Private Equity Finance in the Harvard Business School MBA.

Professor Ivashina holds a Ph.D. in Finance from the NYU Stern School of Business, and a B.A. in Economics from Pontificia Universidad Católica del Perú.

Reaching-for-yield—investors’ propensity to buy riskier assets in order to achieve higher yields—is believed to be an important factor contributing to the credit cycle. This paper presents a detailed study of this phenomenon in the corporate bond market. We show that insurance companies, the largest institutional holders of corporate bonds, reach for yield in choosing their investments. Consistent with lower rated bonds bearing higher capital requirement, insurance firms’ prefer to hold higher rated bonds. However, conditional on credit ratings, insurance portfolios are systematically biased toward higher yield, higher CDS bonds. Reaching-for-yield exists both in the primary and the secondary market, and is robust to a series of bond and issuer controls, including bond liquidity and duration, and issuer fixed effects. This behavior is related to the business cycle, being most pronounced during economic expansions. It is also more pronounced for firms with poor corporate governance and for which the regulatory capital requirement is more binding. A comparison of the ex-post performance of bonds acquired by insurance companies shows no outperformance, but higher systematic risk and volatility.

In recent years, institutions have increasingly invested directly in private equity, bypassing the traditional intermediated fund structure. According to Preqin survey data, in 2012, approximately two-thirds of investors in private equity funds were actively seeking or considering the right to co-invest. The growing appetite for direct investments is spread across all types of institutional investors, often at the expense of capital allocations toward traditional private equity funds. Our paper is a first large-sample study of direct private equity investments by institutional investors. The analysis uses a proprietary dataset of all such investments by seven large institutional investors over twenty years. Despite the substantial fee discounts, we find little evidence of attractive relative performance by direct investments. In particular, co-investments underperform traditional fund investments. Overall, our evidence shows that institutional investors may find it difficult to capture the rents earned by private equity managers by investing directly. This result reinforces the role of traditional private equity funds as a financial intermediary.